Capitol Updates

Friday, July 26, 2024 
  
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Special Session Public Hearings will be livestreamed via Nebraska Public Media: Watch hearings online HERE. 

Governor Calls Special Session to Expand Sales Tax to Fund Property Tax Cut and State Takeover of K-12 Public Schools

Governor Jim Pillen called a special legislative session that began Thursday, July 25, 2024, to expand the sales tax to cover more than 100 types of currently exempt goods and services. The new tax is projected to increase state revenues by $950 million which would be used for a takeover of local public schools and a reduction in the property tax.  

Special legislative sessions, convened outside the regular legislative calendar, can be called by the governor to address specific issues. Article IV-8 of the Nebraska State Constitution states that the governor can introduce additional subjects for legislation during such a session through an amended proclamation. Here is a list of all new bills introduced during the special session: Click here. 

The primary focus of this special legislative session will center on debate over two major proposals, both aimed at reducing property taxes but differing in their approaches to funding K-12 public education. The NSEA government relations team will keep you informed throughout the special session and work to protect funding and local control of K-12 public schools. This legislative update will provide details on these proposals and analyze their potential impacts on public education funding. 

Proposal 1: Governor Pillen’s Plan 
Governor Pillen’s proposal, LB1 introduced by Sen. Linehan at the request of the governor, aims to transfer a significant portion of the financial responsibility for K-12 education from local school districts to the State of Nebraska. Under this plan, the state would – over a 3-year phase-in plan – take over funding for K-12 public school operations by shifting most school funding from local property taxes to the state sales tax. However, implementing this shift requires careful evaluation of the state’s budgetary constraints and overall fiscal management to ensure that the new funding structure can effectively support the diverse needs of all school districts as well as be sustainable. Here are the key components of Governor Pillen’s plan: 

1. Funding Shift: In 2023, school districts collected $3.09 billion in property taxes. Under Pillen’s plan, the state will cover most of the costs for educating students, which Pillen projects will cut the average property tax bill by up to 50%. Local property taxes would still be used to fund the maintenance and construction of school buildings and other physical assets. 

2. Tax Programs Remaining: Property taxes will continue to fund voter-approved bonds, the Special Building Tax, and the Qualified Capital Purpose Undertaking Fund (QCPUF) Tax, which together amount to $497 million. This would leave the state responsible for covering the remaining $2.6 billion in educational costs. 

3. Phased Levy Reduction: The plan introduces a gradual reduction in the school levy rate cap, which currently stands at $1.05. This reduction would be phased in over three years: in 2024, the cap would decrease to $0.15; in 2025, it would drop to $0.075; and by 2026, the levy rate cap would be eliminated. 

4. Retooled Property Tax Relief Programs: The plan would simplify existing property tax relief programs, which can be complex and underused. The goals are to make it easier for more taxpayers to benefit from these programs and to reduce the state’s funding obligation to $1.29 billion. 

5. Tax Exemptions and Sin Taxes: To generate additional revenue, the plan would eliminate more than 100 tax exemptions and increase taxes on items such as cigarettes, candy, soda, vaping products, spirits, keno gambling, games of skill, and consumable hemp. Some of the goods and services under consideration for new sales tax are home repair and maintenance, vehicle repair, hair care, veterinary care for pets, tax preparation services, agricultural machinery and equipment, manufacturing machinery, lottery tickets, legal services, parking lots and garages, entry fees for youth sports events and for statewide sporting events. This is expected to raise $1.15 billion to help cover the state’s takeover of funding K-12 education operations. 

6. Funding Assurance: If the state does not meet its funding commitments, local districts will have the option to levy property taxes to make up the shortfall. Additionally, districts can seek additional funding through voter-approved levies if needed; however, a super-majority vote of 60% would be required under the plan. 

Proposal 2: Lower the Levy Cap for Guaranteed Property Tax Relief Plan 
In stark contrast to the Governor Pillen Plan, Senator Jana Hughes of Seward has introduced LB9 that seeks to address property tax concerns by focusing on reducing the school levy cap while maintaining the current public school funding mechanisms. Her proposal primarily involves modifying state aid to education funding, aiming to lower the overall tax burden without altering the fundamental structure of how public schools are funded. This plan does not address the need for new revenue sources to supplement education funding. Here are the key components of the Lower the Levy Cap plan: 

1. Front-Loading Funds: This component involves injecting an initial $444.3 million into the TEEOSA formula through LB1107 funds. This upfront investment is designed to provide an immediate and guaranteed reduction in local property taxes. 

2. Levy Cap Reduction: The plan proposes to reduce the Levy Cap from its current rate of $1.05 per $100 of property valuation to $0.65 by 2025, and then to $0.25 by 2033. This gradual reduction aims to lower the maximum property tax rate over time. 

3. Valuation Adjustments: Property valuations used in the TEEOSA formula will be adjusted. For residential, commercial, and other real properties, the valuation percentage will decrease from 96% to 86% of market value. For agricultural land, it will drop from 72% to 42% of market value. These adjustments are intended to lower the taxed value of properties, thus reducing the property tax due. 

4. Elimination of Certain Adjustments: The plan will remove the Averaging Adjustment and the Allocated Income Tax components within TEEOSA. This change is expected to reduce total state aid to education by $100 million. 

5. Base Levy Adjustment: This ensures that every school district will still contribute some level of local funding. This adjustment helps maintain a baseline of local financial support for schools. 

6. Funding Assurance Mechanism: Like the Governor's proposal, this mechanism allows districts to reinstate a property tax levy if the state fails to provide the necessary funds. This provides school districts with a backup option to secure needed funding. 

7. Special Building Fund: The Special Building Fund will be excluded from calculations related to property tax authority. This change is intended to simplify the tax authority calculations. 

8. Carry Forward Provision: Districts will be allowed to carry forward any unused property tax request authority from previous years. Additionally, they will be required to use this authority above a set growth percentage to ensure efficient utilization of available funds. 

If the “Lower the Levy Rate” Plan is adopted, Nebraska's ranking in school funding per student is projected to rise significantly, moving from the bottom 10 to the top 10 among states. Additionally, Nebraska's ranking in property taxes per resident will substantially decrease. Currently, Nebraskans rank 7th among states with the highest property tax rates for homeowners, according to the Tax Foundation. 

Alarm over Governor’s Planned State Takeover of K-12 Public Education 
Concerns about state funding for K-12 education under the Pillen Plan stem from the potential loss of local control and the risk of uniformity in educational approaches. Local communities have an intimate understanding of their unique educational needs and challenges, which state authorities may not fully grasp. Centralizing funding and decision-making at the state level risks diminishing local input and customization, potentially leading to a one-size-fits-all approach that fails to address the specific circumstances of individual districts. Local control allows for more tailored and responsive educational strategies, ensuring that students' diverse needs are met effectively in their environments. 

A centralized state funding system also poses the risk of imposing uniform standards and practices that may not be suitable for all districts, potentially lacking the flexibility to cater to diverse student populations and priorities. The unique socio-economic, cultural, and educational contexts of various regions require adaptable solutions that can be quickly implemented at the local level. Uniformity, while potentially simplifying administrative processes, could stifle innovation and responsiveness, leading to a less dynamic and effective educational system. Local districts, under a rigid state framework, might struggle to provide specialized programs and innovative teaching methods, which often require flexible funding and curriculum development better managed at the local level. 

The NSEA strongly believes that while state funding can provide essential support and alleviate local tax burdens, it is crucial to balance this with maintaining local control and flexibility. The TEEOSA (Tax Equity and Educational Opportunities Support Act) framework in Nebraska is an example of a system that has evolved to address these concerns by providing state aid while still considering the specific needs of local districts. Enhancing state aid through such frameworks can help ensure that funding is both adequate and responsive to the diverse needs of students across the state. 

ACTION ALERT:
Contact your state senator today and make your voice heard! Committee Hearings Begin Next Week

We urge you to contact your state senators and advocate for maintaining local control over education. Here are key points to discuss: 

• Preserving Local Control for Tailored Education: Emphasize that local communities are best equipped to understand and address the unique needs and challenges of their students. Centralized control risks overlooking these specific requirements, leading to a one-size-fits-all approach that may not be effective for all districts. 

• Balancing Property Tax Relief and Educational Flexibility: A reduction in the property tax should not come at the cost of relinquishing local authority and flexibility in our schools. Highlight that local control allows for tailored educational strategies, innovative teaching methods, and specialized programs that meet the diverse needs of our student populations. 

• Funding Stability: There is well-founded skepticism about the State’s ability and willingness to honor its commitments to funding our public schools. This concern is especially relevant in a recessive economic environment. The state’s formula for providing needs-based state aid for schools has rarely been fully funded without modifying the formula to reduce the state’s commitment. 

• Addressing the Teacher Shortage with Local Solutions: Stress that centralized control would make it difficult for districts to address the current teacher shortage. Local input and decision-making power are crucial for creating effective recruitment and retention strategies that can attract and keep quality educators in our schools. 

• New Taxes Unfairly Impact Working Nebraskans: The Governor’s plan calls for 120+ new taxes on everyday goods and services, which would create a massive, unfair tax shift that will disproportionately impact hardworking, everyday Nebraskans. 

LAWMAKERS NEED TO HEAR FROM YOU!  We encourage you to consider testifying about this issue. Hearings begin on Monday, July 29, 2024. If you are interested in testifying, please email NSEA GR Associate Eamonn.Leahy@nsea.org or call Eamonn at 402-475-7611. Thank you! 

Committee Hearings Begin Next Week
Public hearings on newly introduced bills begin on Monday, July 29th. We will provide updates on when bills will be scheduled for hearing throughout the special session. 

 Hearings will be livestreamed via Nebraska Public Media: 
Watch hearings online HERE.